The exchanges have rocked global markets
and threaten the global economy
. What happens next is anyone’s guess.
China has said it is prepared to fight, if necessary. And it has one hugely powerful weapon up its sleeve: it’s the American government’s biggest creditor.
, Beijing could trigger a panic in bond markets by dumping some of the $1.1 trillion in US Treasuries that it owns.
By releasing a flood of US Treasuries, the price would collapse, sending yields (or interest rates) soaring and causing American borrowing costs to rocket.
But there are very good reasons why China is unlikely ever to pull the trigger. First, it may not have the desired effect. Second, it could backfire badly on its own economy.
“It’s likely not the most effective tool available,” said Brad Setser, a senior fellow at the Council on Foreign Relations and former US Treasury economist.
The nuclear option
China has taken steps in recent days to prop up the yuan, signaling that the depreciation was intended as a warning sign. But President Donald Trump could still hit back
, even as the administration sticks to its plan for more trade talks in September.
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